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Competition, Monopoly and Corporate Governance

Essays in Honour of Keith Cowling

Edited by Michael Waterson

Competition, Monopoly and Corporate Governance covers three broad themes, each associated with a particular strand of Keith Cowling’s own writings in industrial economics and each represented by four specially commissioned papers.
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Chapter 6: Labour Supply, Efficient Bargains and Countervailing Power

Robin A. Naylor


6. Labour supply, efficient bargains and countervailing power Robin A. Naylor One of the many and profound lessons one learns even in casual conversation with Keith Cowling is the importance of challenging basic assumptions. This is at once liberating – as when the challenge is of the mainstream or orthodox – and intimidating – as when the questioning required is of oneself and one’s own assumptions. In each case, engagement with Keith is stimulating, rewarding and always designed to be constructive. Keith’s views on industrial and labour economics have influenced my own work in many respects. For example, Keith’s view that oligopoly rather than perfect competition is the appropriate starting point for analysis is echoed in my focus on models of union-bargaining in contexts of oligopolistic product markets. From this, it is also natural to challenge the conventional wisdom that firms do not possess market power in their labour market. In this chapter the concept of employer power in the labour market – virtually a heresy in the orthodoxy of mainstream competitive models – is a key feature of the labour supply model which we develop. Power is assumed to characterise firms in the labour market, enabling them to extract rent from workers. This leads to a non-orthodox view of labour supply and to corresponding implications for the desirability of labour market interventions such as minimum wage legislation. However, one implication of the model is that employers can respond to minimum wages by adjusting work hours upwards and hence undermining the benefits...

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